My 5 year old daughter suffered an injury due to Medical Malpractice and was just awarded a settlement of almost $1 million daughters. All of the financial advisers her lawyer has referred my wife and I too have wanted us to put the money into an annuity fund, which would then pay her a set amount when she turns 18 or 21 years old.
This option seems ridiculous to me because they will have her money for YEARS, yet only pay out a few thousand a month for the rest of her life. It will take her literally decades to even reach the initial settlement/investment amount, not counting 13 years of interest.

What other options do we have besides an annuity and what would you do if you were in this situation? Basically we have invested in the stock market, our retirement savings, etc. basic stuff, but this is out of our league.

Any advice is greatly appreciated.

Wed Oct 14, 2015 11:31 am

littleroc02usModerator

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My guess and it's only an educated one, is that the reason the financial advisors are pointing to Annuities is because the commissions they'll make off the the investment. What draws a lot of people to Annuities is that they are considered safe and give the investor a consistent payment for life. But there a large number of drawbacks.

1. fixed annuities - If they are guarenteeing a 6% return, it isn't necessarily true. If you read the fine print it's usually based on re-evaluating the market perfromance anywhere from 1 to 5 years. So if suddenly the market is having a down year, then your returns will obviously be less or they wouldn't be making a dime off of your investment.

2. Commissions - The sales person gets a commission for selling this product to you.

4. Taxes on beneficiaries - meaning if you die and leave this money to your heirs then they will be taxed on the money.

*Personally I'd hire a financial advisor that has the heart of a teacher that explains your options that you understand and meet your goals. I wouldn't invest with anyone that wants a commission for selling a product. Invest with someone who only gets paid to help you. Good luck!

Risk comes from not knowing what you're doing. (Warren Buffet)

Wed Oct 14, 2015 3:50 pm

oldguySenior Member

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I agree with littleroc, my opinion is that annuities would be a very poor choice. They charge high fees and make you pay for unwanted life insurance - plus the return is low. And if you spend the million to buy an annuity the million is gone, all you have is promise to pay.

I would use a no- load fund co like Fidelity or Vanguard. About a 50-50 mix of stock fund and bond fund. For stucks, use the US generic stock fund, the SP500 500 Index Fund. It doubles every 7 years, on average.

Wed Oct 14, 2015 9:10 pm

craigdMember

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I would stay away from annuities as well. Depending upon your risk tolerance, a $1 million net worth would allow you to be classified as an "accredited investor" and open up investment opportunities not available to the masses. However, investing in unregistered securities alongside sophisticated private equity investors could be overwhelming, and may be far too risky to fulfill your fiduciary responsibilities.

Another avenue would be real estate, which I am actually contemplating in the near future as well having lived in a burgeoning market in Miami, FL. Buying and renting homes in desirable locations has outpaced market returns previously in both the form of growing equity in the property, as well as additional revenue to reinvest elsewhere.

A safer investment outside of the markets is municipal bonds, which have proven a much lower default rate than their corporate bond counterparts when comparing investment grade options (AAA to BBB) over the last 10-20 years. Make sure to keep track of the volume inflows and outflows for these instruments, as consumer sentiment tends to drive yields in this environment.

Tue Nov 24, 2015 12:49 am

katiebevanNew Member

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I agree that annuities is a poor choice which won't pay much returns. Though I am not much knowledgeable in this area, I would suggest you to consult a fund management company who have good reputation in the market and won't just sell their services to you. You need to look out for a manager who understands you problem well and is dedicated to meet your goals. I recommend going for a fund manager because when I was facing a similar problem, it was my fund management company forager funds who helped me solve the problem in an absolutely wonderful and hassle free way. There definitely are perks of letting a professional solve your problem as a lot of burden is taken off your shoulders. The only thing you need to see is that the one you get has no ulterior motives.